Cash is king for remodelled Foschini
THE Foschini Group has undergone a makeover in the past four years. It has focused on cash sales over credit to become a more defensive stock and insulate itself better against a tough economy.
It has also developed an array of brands beyond its core ladieswear ranges, with which it is still closely associated, to include Fabiana, @home and DueSouth.
These moves have made it more attractive to the market.
The share price of TFG (as it now calls itself) jumped 436% over 10 years. But it lags competitors. Mr Price’s share price shot up more than 2 000% over the 10 years; Woolworths is up 910% and Truworths up 607%. The upside for TFG is that there is more potential upside where others have already run hard.
Independent analyst Roger Tejwani said: “Foschini’s valuation has been out of sync with peers for some time, despite offering an attractive yield and [more recently] posting comparatively satisfactory trading numbers. I don’t think the market has rerated Foschini, but it is warming to the investment case, particularly since management stated a clear objective to become more equally cash and credit focused.”
Foschini had historically suffered from inconsistent trading, so a sustained period of stable trading should generate more positive sentiment, he said.
TFG CEO Doug Murray, commenting on the group’s mix of cash and credit sales, said: “It’s always been our drive to get close to 50% . It gives us a much more defensive place in the market because you’re less impacted by any credit downturn but can still take advantage of a strong credit market.”
The group’s percentage of credit sales has dropped, and cash sales have grown significantly. For the year to March, cash sales made up 42.4% of its R14.8-billion total sales, and credit sales accounted for 58%. The latter has reduced since then, and now stands at about 56%.
The group has about 2.5 million cash customers and three million credit customers.
It has rebranded from Foschini to TFG (The Foschini Group) to reflect its exposure to a wide range of brands, 17 in all . Ladies casualwear makes up only about 6% of group sales. It is a market leader in homeware, through the @home brand where the initial opportunity was for up to 40 outlets. There are now 100 @home stores.
The group bought Fabiani and G-star, started Due South, and American Swiss now carries more expensive jewellery. Totalsports is a market leader in sportswear.
Murray thinks the market is near the bottom of this credit cycle, but will not ease tougher credit restrictions until the consumer gets into a better place.
TFG has looked at other emerging markets, including Brazil, but decided to stick close to home. “Brazil is definitely not an option for us,” he says, adding that the retail market was “quite immature relative to South Africa”.
He is not a big fan of retail in Australia, unlike Ian Moir, who heads Woolworths, which recently bought David Jones.
Commenting on the Australian retail market, he said: “It’s dog-eat-dog, rentals are high, salaries are high, most of the retailers battle to make money. The internet is having a huge impact on that country; they are overtraded.”
Africa is increasingly important for the group.
TFG has 132 stores with some in Botswana, Zambia and Swaziland. Last year, sales elsewhere in Africa grew 26% while comparable growth was just under 16%. This compared favourably to the group’s overall growth of just under 10% and comparable store growth of 5%.
“There is no doubt it makes sense to grow that part of our business,” said Murray.
TFG will open five stores in Ghana in October, and plans to expand into Kenya in 12 to 18 months.